Federal Budget 2021: Goodbye debt, farewell deficits — and welcome to BigGov Land

By Bernard Keane

Tuesday May 11, 2021

Adobe

The Morrison government has committed Australia to an era of big government stretching into the 2030s, with a long-term rise in spending in key areas and a significantly slower reduction in the budget deficit than previously planned.

The government will bank savings from a significantly faster economic recovery this financial year, pulling the deficit down from nearly $200 billion in December’s Mid-Year Economic and Fiscal Outlook (MYEFO) to $161 billion. But the increase in government spending will begin next year: the forecast deficit for 2021-22 is barely changed at $106.6 billion, compared to $108.5 billion in MYEFO, while the deficits for 2022-23 and 2023-24 will actually increase above even the levels forecast in last year’s budget.

To illustrate how radically the government plans to pump up spending from next year, in MYEFO the government forecast it would spend $567 billion in 2021-22, $571 billion in 2022-23 and $592 billion in 2023-24.

The equivalent numbers are now $588 billion, $593 billion and $612 billion. It means that in 2024-25, the government plans to still be spending over 26% of GDP — significantly higher than the peak year of stimulus spending by the Rudd government. And this spending will be undertaken when, according to budget forecasts, unemployment has already reached 4.5%.

And while the trajectory of net debt is significantly lower than previous forecast courtesy of the $50 billion saving for this current year compared to the 2020 budget, net debt is still forecast to be above 33% of GDP into the 2030s.

Much of the new spending is one-off spending such as a relatively limited amount of new infrastructure spending (as always, announced as a colossal $110 billion program), but much of it is baked into the budget permanently: the $17.7 billion aged care package will increase total aged care spending to just under $30 billion in 2023-24, compared to a forecast of $26.1 billion last December, then go over $30 billion, including over $26 billion for residential and home care services.

Debt and deficit concerns — once the sine qua non of Australian politics — have been left in the dust. And by a Liberal government that has long preached the virtues of fiscal discipline, if rarely practiced them. Welcome to the new world of very big government.

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